We have looked at $TILT before, remarking on the amazingly expensive impairment of goodwill they undertook just a few months ago. 

And what a story it is.

For those of you ‘new’ to TILT, they’re a B2B primary outfit that provides vape hardware and a CRM platform – that also has a grow show and dispensary (or two) in PENN. And then the capital structure engine threw a rod (go to the 1:17 mark for a visual example).

They recently got upbraided by the British Columbia Securities Commission for – among other things – just about everything they could get upbraided for:

So, a new ‘To Do’ list was written. Find a new CEO (check), reprice founders options (check), install an acquired company’s management to run it (Blackbird, check), issue press releases affirming the company’s future, restate financials, dump the heavily relied upon pro-forma (provisional) bullshit, and above all, act like an adult. Straight forward, right? (Stock tip: follow the directors punted to their new ‘directorships’. They likely won’t use TILT on their resume, and might use alternate or slightly altered name. Now you know how the penny stock world works).

The business model of $TILT is what some would call ‘backbone’ – as their services largely run the processes that dope-stores use to capture transactions, sell high margin vape supplies, provide brand aggregation, logistics, and (as mentioned), customer relationship software. It helps they’ve got a grow show and storefront themselves, as well as 95% of PENN’s cultivation. It doesn’t help that their entire board and much of the C-Suite is a blast crater – where we find in these financials was because of issues around transparency, compliance, and governance. Three things that become of extremely high value to those who didn’t take the time to bother with it in the first place. And there’s more in this sector.

We know there’s some fans of this outfit (they told me what they thought of my last piece on TILT), so let’s take a cut at the statements, and see if there’s a business lurking under all of those enforcement orders. 

To the financials!

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• Good revenues at $49MM. Ramping too.
• 30% margin. Reflective of B2B, licensing, and architecture services.
• I missed BlackBird last writeup – they were a tech company bought last January – that exists in the same logistics space as a ‘3Sixty’ type of company. Curiously, two of their management team became the COO and CEO of TILT.
• In one of the strangest bookings I’ve ever seen, $37MM of SBC was sorta *reversed* in this quarter. God, where to even start with that. I could write it up, it’d probably take 5 hours, several references to CICA/IFRS guidelines, and could probably be used in a graduate accounting course as an example of how a ‘unicorn’ should be entered into financial statements.
• Without that SBC reversal, the company would have lost $11MM this quarter.
• The recent capital raise for bridging is – by far – the most expensive money I’ve seen in-sector. Crazy expensive. Like, buying a Gucci designed Ferrari with Dolce & Gabbana seat coverings and Rolex ‘inspired’ rims. Oh, and platinum grills. 18.75%, and tighter than a straight-jacket.
• Replacement financing is similar. 1,800 warrants per $thousand$ of debenture(!) no less at a 50% discount to market. Every time I see something in-sector that surprises me, something newer (and more surprising) pops up. Hell, that bridge is looking good at this point.
• This raise is the heel to put on that bridge’s neck, and fire a shot point blank at its’ face. As in, it’s proceeds are intended to extinguish it. Trouble is, its’ more expensive. 
• Despite all of the climb-downs and financial restatements, they were able to lose $100MM on $119MM of revenues this year.
• Boy o boy – those ‘compressed’ shares are a treat no? Picture below for effect.
• These financials are utterly depressing to review. Yeah, that’s not exactly a technical observation, but it’s still true.
• Intangibles and Goodwill notes in the statements remain a laugh-track. At least there’s patents and trademarks left.
• At this moment, pointing out $250k gains in forex is like a laugh-track in a sitcom going on uncomfortably long. For long-time readers, you’ll know I have an issue with gain/losses on forex – it’s simple (and cheap) to hedge exposures. And I have no idea why any company in-sector would have to report any. It’s kind of a litmus test of management’s capability to myself (having come from trade), and a tell as to their sophistication. 
• Given the numbers these guys have turned out, a quarter million gain is likely the least of their concerns.

Okay. 

Honestly, this one could take days. Given it’s penny stock status, and a long ways from proving viability – I’m not going there. With businesses in distress (but holding some actual businesses within it) – they can go a long time kicking a can before they have to cry uncle. 

The compressed shares are really something else. Other outfits have avoided running onto these rocks, but only because they haven’t had to impair goodwill – which (generally) will bring more scrutiny to capital structure. The uplift to the total float is something else.

And there is obviously a business in here. Whether it’s viable ‘as-is’ or not is a different question. There’s a few investors out there who trip balls over ‘Jupiter’ (a Chinese vape manufacturer) who claims some IP around the units. While ‘Pax’ like in claims of wonderful-ness – they also promise lower cost and better features. I can’t opine. Numbers will though, and we will see. The rest of it is really backbone stuff – and is somewhat tertiary to selling pre-rolls and extracts to someone off the street. 

Their differentiation is in purpose built software and security services. A small grow op, and first mover asset in PENN is a benefit for the moment. Time can and will degrade capabilities: it’s up to the company to not only get what they can during this period, but also to establish market presence prior to new entrants emerging.

Their dealmaking is reminiscent of $CURA, which is reminiscent of $CXXI. Getting a bag of cash and going shopping for a business is one thing: buying a profitable business that’s able to expand is quite another. A repricing of the founder’s warrants was inelegant, but probably no other option existed.

These guys look poised to make money, if they can only get out of the non-disclosure trap and hope-less leverage they have been forced to choke down. With a $635MM sucking wound in equity – no company could get to this point without having earnings that could in some other dimension support them. And it looks as if $TILT leveraged all of that to get there.

Companies like this one are speculative – far more than just your garden variety ‘speculative’. Which is really saying something. Right now, all you want is the new guy to lock this thing down, contain all of the kittens trying to run out of the bag, and bring rigour to the business. In governance, reportage, and business practice. 

Let’s see how they deal with it go-forward. I doubt we’ll have to wait long to find out how the story ends. If there’s distress – you’ll see it in them factoring revenues on Jupiter or the CRM licensing. If either of those revenue streams are being disgorged to support operations, you’ll know the end-credits won’t be far behind. 

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $TILT